Nieborg, D. (2016). From premium to freemium: The political economy of the app. In T. Leaver & M. Willson
(Eds.), Social, Casual and Mobile Games: The Changing Gaming Landscape (pp. 225–240). London and New York:
Bloomsbury Academic.
Released under a Creative Commons BY-NC-ND license http://creativecommons.org/licenses/by-nc-nd/4.0/.
Your rights under the License are in addition to any fair use or fair dealing rights which you have.
16
From premium to freemium:
The political economy
of the app
David Nieborg
F
or decades, the game industry has been dominated, if only in terms of
revenue and mindshare, by a tandem of globally operating game publishers and game console platform holders. Historically, these two small groups
of industrial actors, primarily located in North America and Japan, have been
‘dominant forces’ in the game industry (Consalvo 2007, 123). Similarly, Johns
(2006) notes that power relationships in the game hardware and software
production networks are uneven and are affected by temporal and spatial
dimensions. Driven by the cyclical introduction of new hardware platforms,
the platform/publisher duo served a relatively stable, highly lucrative niche
market (Williams 2002; Kerr 2006). Every five to seven years, development
and marketing budgets increase and, as a result, so do financial risks and the
distribution of capital and power (Schilling 2003). Geographically, the main
centers for console game development have been North America, Western
Europe and the Asia Pacific (Johns 2006). That is to say, the majority of the
billions of dollars of value generated by the sale of video game hardware
and software has been captured by a small number of globally operating
firms who have a high rate of incumbency. The relationship between game
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publishers (e.g. EA, Activision Blizzard and Ubisoft) and a triopoly of platform
holders (i.e. Sony, Microsoft and Nintendo) is best described as symbiotic
and is regarded as a canonical example of a ‘two-sided’ or ‘platform market’
(Rochet and Tirole 2003; Evans, Hagiu and Schmalensee 2006).
More recently, the resurgence in PC gaming together with the mass diffusion
of smartphones and tablets signaled a diversification in gaming audiences,
hardware platforms, development practices and publishing strategies (Mäyrä,
2008). Rayna and Striukova (2014) describe the ‘traditional’ business model
for physically distributed games as a ‘few-to-few’ business paradigm, with a
small number of industrial actors catering to a distinctive audience. Conversely,
the emerging business paradigm associated with mobile devices is better
understood as a ‘many-to-many’ model. Instead of catering to ‘a base of young
male hardcore fans’ who are attracted to ‘strongly gender coded scenarios of
war, conquest, and combat’ (Kline, Dyer-Witheford and De Peuter 2003, 247),
game companies targeting mobile platforms are able to reach a wider and
much more diverse audience in terms of age, gender and location. Mobile
phone usage is at an all-time high and apps have rapidly become a relevant
economic and cultural form (Goggin 2011). Exploratory research by Okazaki,
Skapa and Grande (2008, 832) suggests that ‘perceived convenience’ (i.e. the
ability to play anywhere, anytime) afforded by mobile devices, has been an
important determinant of mobile gaming adoption. Similarly, Crawford notes
that: ‘advances in mobile and media technologies have helped make playing
video games a much more simple and everyday activity’ (2012, 152). The
diffusion of accessible hardware coincides with the popularization of casual
games (Juul 2010). For example, game studio King serves over 340 million
players across emerging platforms with popular puzzle games such as Candy
Crush Saga and Farm Heroes Saga (King Digital Entertainment 2014).
The viability of the emerging collective of proprietary platforms operated
by Google, Amazon, Facebook and Google resulted in a disruption of the
business models traditionally associated with media companies (Van Dijck
2013; Fuchs 2014). The rapid ascendance of new market entrants in the game
industry such as King mark a fundamental shift in institutional power relations
among platform holders and developers. Independent game studios, startups, artists, hobbyists and students have been able and quite eager to enter
the new market for mobile games; a market that is much more accessible
and potentially lucrative for newcomers. Compared to multi-million dollar
blockbuster productions for dedicated game consoles financed by large
incumbent game publishers (Nichols 2014), developing a mobile game is not
only considerably cheaper, but also a much faster process. To take an app
from idea to publishing can be a matter of months rather than years (Holzer
and Ondrus 2011; Banks 2012). That is to say, emerging game platforms offer
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game studios a much wider array of development and publishing choices,
most notably the option to bypass incumbent game publishers via selffinanced game productions.
Yet, despite the mobile market’s appeal as a relatively accessible and
growing market, the segment already exhibits signs of increasing industry
consolidation and subsequently the concentration of capital and power.
The mobile segment, I would argue, is accessible, but deceivingly so. The
unprecedented revenue growth of King and surprise sleeper hits such as the
by-now infamous Flappy Bird fuel the perception that emerging platforms offer
a level playing field for all game developers.1 In this chapter I want to challenge
the egalitarian notion of the app economy as a ‘many-to-many’ model. Rather,
the lure of accessibility functions in a similar way as the American Dream. The
app economy holds great riches indeed and appears to offer great wealth for
those who are willing to work hard. With app development being considered
a ‘sunrise occupation’, developers feel that a hit game is always within reach
(Bergvall-Kåreborn and Howcroft 2013). That said, drawing on critical political
economic theory, I would contend that the mobile segment should be
considered as a ‘few-to-many’ model. A handful of superstars camouflage
the inherent power asymmetries and the strong winner-take-all dynamic
constituting the political economy of the information economy.
In order to gain a deeper insight into the many ways power and wealth
are related, my argument is informed by the ‘institutional’ tradition of critical
political economy (Mosco 2014). This macro-economic approach pays special
attention to the relationship among industrial actors and the control over the
means of production and circulation. Vital to this macro-economic approach
and to studying the articulation of power in the cultural industries, is the process
of spatialization. This process concerns questions of ownership and power,
and is best understood as ‘the institutional extension of corporate power in
the communication industry’ (Mosco 2009, 158). This approach studies the
for-profit entities’ tendency to cluster capital and pays special attention to the
concentrated nature of industrial ownership. Critically engaging the business
practices and business models of mobile game studios allows for a reflection
on the implications of the changing power dynamic among industrial actors.
Keep calm and follow the money
Incumbent and newly entering actors who want to gain foothold in the mobile
segment are constantly forced to reconsider all functions of their business
models (Bergvall-Kåreborn and Howcroft 2013, 971–2). Chesbrough (2007)
offers six functions that together make up the business model framework: the
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value proposition, target market, value chain, revenue model, value network
or ecosystem and a firm’s competitive strategy. As my interest lies with intraindustry positioning of individual firms I will focus on three functions in particular,
the value chain and network and the revenue model. The most visible of these
changes would be the dramatic shift from the dominance of the premium
(transaction-based) revenue model towards various incarnations of ‘free’revenue models, which will be discussed in the second half of this chapter.
Moreover, I will contend that emerging platforms have become key spaces
in which established and new practices of cultural production and circulation
are (re)negotiated and (re)organized (cf. Van Dijck 2013). While the means of
app production are undeniably accessible to a wider group of individuals, one
can question the ability of new entrants to attract sufficient users. As Kline,
Dyer-Witheford and De Peuter observe: ‘in many media industries, the high
ground for strategic control of interactive game revenues lies not in production
but in marketing and distribution’ (2003, 178). Emerging platforms, such as
Apple’s iOS ecosystem, operate highly integrated online marketplaces that
grant platform holders more, rather than less power over the means of
circulation. For example, by prominently featuring an app in its App Store,
Apple can ‘bump an app’ and generate significant downloads. In addition,
Broekhuizen, Lampel and Rietveld (2013) note that for direct-to-consumer
business models to be financially feasible, developers still need access to
‘specialized complementary assets’ such as a large content portfolio and
marketing skills and assets.2 Their exploratory research suggests that both
incumbents and newcomers benefit from the ability to hold on to or acquire
these assets, which are best qualified as capital-intensive, but also ‘inimitable,
scarce and difficult to reproduce’ (ibid., 955). Since access to the means of
circulation (i.e. marketing and distribution) is highly controlled I would argue
that it has become the locus of control in the app economy.
To offer a contextual baseline and a comparative framework to critically
discuss continuities and changes in the institutional configurations, the current
shifts in the mobile segment will be compared against the traditional market
segment of Triple-A video games. To limit the scope of this chapter, the main
focus will be on video games published in North America and Western Europe
for networked game consoles (Xbox 360 and PlayStation 3) and mobile games
published for Apple’s mobile (i.e. iOS) devices. By offering a comparative and
material perspective, the aim of this chapter is to offer a critical and historical
dimension to current debates on the economics of mobile gaming.
The subsequent analysis of the Triple-A game segment is informed by
over two dozen of semi-structured interviews conducted between 2006
and 2010 with a wide range of industry informants in Western Europe and
North America (Nieborg 2011). In addition, the analysis of the mobile segment
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draws on conversations with forty-five interviewees who are active as game
critics, business analysts, developers of independent game studios, PR
representatives, game designers, academics and informants working for
state-sponsored business accelerators and regional development agencies
in Israel, Germany, the Netherlands, the United Kingdom, Sweden, Finland
and the United States. These semi-structured interviews were conducted
between late 2012 and early 2015. Before examining the emerging business
models in the mobile segment, I will first discuss those functions of the Triple-A
business model related to its revenue mechanism, the configuration of the
value chain and the institutional arrangement of the segment’s ecosystem.
The console segment
Decades of unimpeded growth in terms of users, revenue and for some profit,
demonstrate that game developers and publishers have been quite capable of
creating and capturing value in the face of constant change. Acknowledging
the many years of steady revenue growth, mainstream press accounts
chronicling the rise of the game industry are almost without exception focused
on hit games and the game studios that ‘made it’. Today’s game industry,
however, is far from a capitalist wonderland that is populated by winners
only and where hard work is always rewarded (Kerr 2006). On the contrary,
scholars have signalled pervasive issues related to the labour precarity of
industry professionals (Deuze, Martin and Allen 2007; Dyer-Witheford and De
Peuter 2009) and the secretive nature of game development, which results in
the perpetuation of a number of ‘toxic’ myths about the industry (O’Donnell
2014, 149).
The environment of Triple-A video game publishing is particularly volatile
and associated with considerable financial risks (Nieborg 2011). Apart from
generic macro-economic challenges, the Triple-A industry segment: ‘is faced
with highly insecure market success, long product development times and
costs as well as perishable products’ (Teipen 2008, 311). While the marginal
cost of reproducing games, being information goods, is low, one of the
notable properties of video game development is high up-front investments
(Hesmondhalgh 2007). These investments have grown dramatically over
the last decade. Consider the hundreds of millions invested in titles such
as Grand Theft Auto V (2013) and a reported US$500 million for the Destiny
(2014) franchise (Grover and Nayak 2014).
Since the first generation of console game platforms, the revenue model
operated by game publishers has been relatively stable and singular, and
revolved around the one-time sale of physical commodities (i.e. discs).
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Revenue sources in the television industries, for example, are more diverse
and are typically generated through the commodification of audiences (i.e.
advertising) and the licensing of television content and the sale of reruns
(Kompare 2005). Conversely, Triple-A games tend to be impact-upon-release
products with a rather truncated life cycle. Even though game publishers
increasingly experiment with digitally distributed commodity forms, for
example the sale of downloadable content (Nieborg 2014), a publisher’s
income is still primarily derived from the one-time sale of heavily marketed,
premium priced games.
Surveying the Triple-A value chain it becomes immediately clear that the
tandem of game publishers and game hardware platform owners are best
positioned to capture the majority of value. Both are co-dependent on a
financial as well as a technological level and hold two crucial positions of
power. Readman and Grantham label game publishers as ‘chain governors’
because of their coordinating role, as they ‘provide the majority of funding for
games development which enables them to set the parameters to which all
other stakeholders have to perform’ (2006, 263). The core task of a publisher
is to act as a clearinghouse for intellectual property (IP), to initiate and finance
game production, to oversee physical distribution and manage PR and
marketing campaigns (O’Donnell 2014).
The console game value chain started as a highly integrated system,
followed by a phase of disintegration, in order to move towards the current
phase of both chain integration and disintermediation (Gallagher and Park
2002; Schilling 2003). Two examples of disintermediation of the Triple-A
value chain are game publisher’s outsourcing development tasks and
software development (i.e. middleware or engines, cf. Kerr and Cawley
2012) and marketing and PR activities to local partners (cf. Deuze, Martin and
Allen 2007; Grantham and Kaplinsky 2005). While these instances of chain
disintermediation might suggest less control over chain linkages by a game
publisher, in practice it offers a publisher financial flexibility and an opportunity
to offset financial risks. As such publishers can leverage their high-capital
position, thereby gaining more control over the entire chain. Chain integration,
on the other hand, is taking place because publishers are poised to leverage
their ‘complementary assets’ (Broekhuizen, Lampel and Rietveld 2013).
Platform holders, for their part, consist of a triopoly of incumbents who,
arguably, are the most vertically integrated companies within the game industry
(Kline, Dyer-Witheford and De Peuter 2003). Nintendo, Microsoft and Sony
exert total control over their platforms by deciding which companies are able
to obtain essential software development kits (‘dev kits’) and licensing rights
and control the circulation of content through an elaborate set of physical and
legal protection schemes.
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In sum, the Triple-A value network exhibits highly concentrated instances of
institutional power (Johns 2006). The majority of game publishers and platform
holders are publicly traded companies that are well-positioned to profit from
economies of scale and take advantage of their access to high capital. This
particular modality of cultural production, combined with the closed-off, proprietary
nature of console hardware, translates into high barriers to market entry. Add to
that the increasing financial risks that accompany blockbuster production, which
has lead to numerous mergers and acquisitions and the bankruptcy of a number
of once dominant game publishers, such as THQ and Midway Games.
Let us leave the few-to-few model behind and focus on emerging game
platforms. Next I will argue that, compared to the Triple-A segment, the mobile
segment exhibits a high degree of diversity in terms of revenue models and
the origin and size of industrial actors inhabiting the ecosystem. Consequently,
the segment not only marks a significant repositioning of industrial actors, it
is indicative of a service-based mode of cultural production and circulation (cf.
Rifkin 2000).
The app economy
Contrary to dedicated game consoles, the smartphone’s promise of
connectedness and integration with physical and online social networks
made mobile technology a vital part of everyday life (Quinn and Oldmeadow
2013). The 2007 introduction of the iPhone and the subsequent launch of
the iPad in 2010 reinvigorated the mobile phone’s viability as a mass market
gaming platform and created the novel product category of tablet-based
games (Goggin 2009; West and Mace 2010). One can make a purely financial
argument of the viability of the mobile market considering recent revenue
growth. The mobile (both smartphone and tablet) segment’s 2013 revenue
topped US$17.6 billion, much more than handheld console games (US$4.4b)
or the US$7.4 billion generated by web-based casual games (Newzoo 2014).
The rapid diffusion of networked mobile game platforms and the promise of
revenue growth galvanized efforts by game developers to enter the market for
mobile games and to subsequently experiment with new business models.
In the era of feature phones mobile game development was complex and
cumbersome, as dominant business models in the mobile segment were
‘telco-centric’; that is telecommunications operators pursued a semi-walled
garden or one-sided market strategy (Ballon 2009). Taking over the gatekeeper
role from telecom operators, Apple employs a ‘device-centric’ business model
in which the smartphone’s programmability translates into radically lower
production costs for applications compared to both feature phone and console
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game development (ibid.). That is to say, unlike console game development,
iOS developers do not need expensive proprietary software development
kits to initiate game development (cf. Evans, Hagiu and Schmalensee 2006).
While the widespread use of open source development tools for games is
uncommon, there are many affordable options available for mobile game
studios, chief among which is Unity’s integrated development environment
and engine, which has seen widespread adoption (cf. O’Donnell 2014).3
The original strategy for the iPhone was to first and foremost offer an
optimal device to experience the Web on a high-end device (West and Mace
2010). Soon, however, Apple opted for a platform or ‘two-sided market’
strategy and introduced the proprietary App Store in order to allow consumers
to download third-party software (Cuadrado and Dueñas 2012). In the last
quarter of 2013, games were increasingly dominant as they represented 80
per cent of the total revenue in mobile application stores (Newzoo 2014). With
Apple at the helm, mobile platforms have changed the ways in which mobile
games as cultural commodities are developed and circulated (Goggin 2009).
Moreover, game development for emerging platforms has become a
viable option for incumbents and new market entrants of all stripes, ranging
from hobbyists, students, artists and well-funded start-ups, to bootstrapping
independent studios, incumbent video game publishers and mobile veterans
from the era of feature phones, among others. Initial research has shown that a
‘diverse group (in terms of geographical dispersion and position in the industry)’
is engaged in app development, ‘including seasoned developers who switched
from working on PCs to smartphones, as well as a 14-year-old teenager who
creates Apps out of interest’ (Mosemghvdlishvili and Jansz 2013, 16). The ease of
development is demonstrated by the availability of apps. Mid-2014, the number
of all apps in the US App Store topped the 1.1 million mark, with US$13 billion
being paid to developers, the majority of which are, again, game developers.4
While mobile game development tools are relatively affordable, getting
a game published in the App Store is subject to a wide range of stringent
rules and ever-changing regulations, as Apple exerts a high degree of control
over its platform (Goggin 2011; Cuadrado and Dueñas 2012). And in the
case of Apple, game developers are tethered to Apple’s uniform hardware
strategy and its fully integrated, centralized portal (i.e. the App Store) on both
an economic and technological level (Holzer and Ondrus 2011). First, Mac
hardware is needed to be able to operate the iOS Software Development Kit
(SDK) and upload apps. Secondly, similar to other application stores operated
by Google, Microsoft and Facebook, Apple subtracts a somewhat arbitrary 30
per cent of all app revenues. Third, before an app is published Apple reviews
it and developers need to follow strict review guidelines covering criteria such
as ‘technological information, privacy, religion, gender, trademarks, and more’
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(Bergvall-Kåreborn and Howcroft 2011, 567). The review process has an air of
inconsistency and is notoriously opaque, little is known about ‘the apps that
Apple refuses’ (Goggin 2011, 154). That said, the time-to-market for greenlighted apps is much quicker (i.e. days rather than weeks), compared to the
months that it takes physically distributed Triple-A games.
Simply put, the role of Apple in the value network is all encompassing and
pervasive. Only in aggregate would unionized app developers be able to wield
any form of collective bargaining power (Bergvall-Kåreborn and Howcroft
2013). Yet, the diverse and globally dispersed nature of app development
seems to hamper any form of organized dissent. It should be noted that
platform governance differs among platform holders. For example, Google’s
rules for the Android platform appear less stringent than Apple’s. Then again,
from a consumer perspective, the control Apple exerts over its platform is
‘radically greater’ than in the ‘analog world’ (Lessig 2008, 97–9; cf. Zittrain
2008). Compared to discs, app usage and ownership is rather restricted, as
the latter can be disabled from a distance, are tied to one user account and
cannot be lent to a friend, nor can they be sold on the second-hand market.
Triple-A game publishers are known to prevent the sale of second-hand
games as well, but employ more passive strategies such as codes for free
downloadable content for first-time owners.
Free-to-play (F2P)
While all functions of the mobile business model are under constant (re)
construction, it is the revenue model associated with app stores attracting
a considerable amount of popular attention (Anderson 2009; Lovell 2013;
Luton 2013). Opposed to the Triple-A segment’s singular revenue model,
which allows for little price elasticity, mobile platforms offer developers and
publishers a much wider set of revenue streams. The App Store allows for (1)
‘premium’-priced apps where users pay per individual download, (2) ‘freemium’
apps where the basic version is free and the full version is unlocked for an
additional fee, (3) advertising supported games, (4) a subscription model, and
(5) games that offer in-app purchases (IAPs), such as additional play-time or
virtual items (Feijoo et al. 2012). Many developers opt for a mixture of models,
although the subscription model is rarely used for mobile games.
The gravitation towards the ‘free’ business model has been remarkably swift.
Early 2008, the premium revenue model was considered the default option and
the prices for apps varied widely. Today, developers predominately opt for the
F2P business model (i.e. IAPs, advertising or a mixture of both). Crucial to the
F2P model is that only a small fraction of players are willing to pay for in-game
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material or services (Seufert 2014).5 As a result, production and circulation
strategies increasingly revolve around player aggregation and data-driven design
strategies for player retention and monetization (El-Nasr et al. 2013). First, the
marketing of apps is fully integrated in proprietary platforms. Instead of billboard,
TV-spots, web-based or search engine ads, game developers employ complex
and capital-intensive ‘user acquisition’ strategies that serve advertisement
in competing apps, often games, to demographically targeted individuals.6
Second, based on player feedback and aggregated player behaviour, mobile
games that gain traction among users receive frequent upgrades ranging from
tweaks to the core gameplay, to additional content (e.g. levels), to changes
to the ‘monetization model’ (e.g. the price of in-game consumables). Taken
together, compared to Triple-A game development, mobile game development
and circulation are much more intertwined and form a constant feedback-loop
rather than the more linear production-circulation process. F2P studios with
successful titles typically employ so-called live-teams resulting in significant
post-release (re)development investments.
Sketching out an archetypical mobile game value chain and app store value
network is increasingly difficult. Not only are revenue models in full flux, the
mobile ecosystem is flooded with start-ups that offer a wide range of specialized
complementary assets, such as game middleware, hosting services, app
analytics and app advertisement. Because of the immense population of app
developers, providers of such complementary assets offer competitive pricing
because of economies of scale, allowing smaller studios access to high-end
capabilities.7 Arguably because of the access to such assets by a wider range of
actors, the game publisher’s historical role of ‘chain governor’ is less ubiquitous
in the mobile ecosystem. It is an important, but as of yet open question whether
publishers are better positioned to leverage their complementary assets
compared to new entrants such as small independent studios (cf. Broekhuizen,
Lampel and Rietveld 2013). EA’s mobile strategy for instance, publishing mobile
spin-off titles in the FIFA , SimCity and The Simpsons franchises, demonstrates
how the veteran publisher is able to leverage its IP and portfolio. On the other
hand, the new wave of billion-dollar powerhouses such as Supercell (established
in 2010) support the hypothesis that new entrants are leveraging their access
to specialized complementary assets or develop in-house capabilities to nullify
such needs. The ascendance of King Digital Entertainment is equally revealing,
showing unprecedented revenue growth, strong winner-takes-all effects, as
well as the growing reliance on game marketing (i.e. user acquisition). For
example, while King touts its ability to have their games grown ‘organically’ by
implementing sharing mechanics leveraging the connectivity of both mobile
platforms and Facebook, US$376 million was spend on sales and marketing in
2013 alone (King Digital Entertainment 2014).
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The current configuration of the mobile value chain, the dominance of the
F2P business model and a sizeable target market means that developers have
to adjust their competitive strategies accordingly. The operationalization of the
app stores associated with emerging platforms advance a fundamental shift
in the locus of control compared to traditional value network configurations
in the game industry. In many segments of the cultural industries, such as
the market for recorded music, the democratization of the means of cultural
production put considerable pressure on incumbents (e.g. Bockstedt,
Kauffman and Riggins 2006). In the mobile segment, however, the locus of
control shifted to the platform holders. Or, as Bergvall-Kåreborn and Howcroft
argue, the notion of self-control of developers is a façade ‘restricted by
marketing conditions and power asymmetries’ (2013, 977). The F2P revenue
model, which relies heavily on user aggregation and in-platform marketing,
only exacerbates this issue and allows companies such as Apple to take an
even more prominent position in the mobile game value network.
Conclusion
While the publisher/platform tandem dominating the Triple-A value chain
and network has as of yet not manifested itself in the mobile segment, this
exploratory study of the political economy of the mobile game segment
shows that the power of platform holders and their position in the ecosystem
is stronger than ever before. As Johns (2006) noted in the introduction of this
chapter, power relationships in the console segment have been uneven and
effected by temporal and spatial dimensions. The same can be said of the
mobile segment. Even though the barrier to market entry remains low, capital
and ownership in the mobile segment is increasingly clustered. Despite
the occasional new entrants and surprise hits, the dominant industry trend
seems to be one of concentration of ownership and capital. Similar to the
Triple-A segment, only a very select number of actors is able to invest heavily
both in game development and app marketing, thereby ensuring their market
position. Apple’s App Store can be considered as ‘a lucrative platform for
some software developers to launch fabulously successful products’ (Goggin
2011, 153). Yet, the emphasis here should be on some developers. In Western
Europe and North America, a very select number of both incumbents, such
as Activision Blizzard and Electronic Arts, together with fast growing new
entrants, derive exponential revenues and considerable profits from their
iOS offerings. It is undeniable that the F2P revenue model is immensely
lucrative for those developers who are able to aggregate significant amounts
of players. Yet, network effects ensure that, similar to other platform markets,
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revenues are generated by a very small number of actors. Market intelligence
firm SuperData Research estimates that the top-100 of mobile games, that is
0.05 per cent, generates 40 per cent of all revenue (Llamas 2014).
While some developers, as a case study by Banks (2012) on the Australian
mobile developer HalfBrick illustrates so well, are able to use the industry’s
constant state of uncertainty and change combined with the formidable
constraints of platform holders to their advantage, it seems that it will be
increasingly challenging to remain competitive in the high-risk, capitalintensive mobile ecosystem. As opposed to product-based revenue strategies
the revenue derived from IAPs has virtually no limit. Those players who pay,
spend considerably. This seems to exacerbate power asymmetries and leads
to further concentration of capital and power. The advent of digital distribution,
coupled with advanced recommender systems, may have opened up niche
markets; it does not challenge the hegemony of the hit (Fleder and Hosanagar
2009). To the contrary, the publishing strategies of mobile moguls such as
King and Supercell show a striking similarity to the blockbuster economics
underlying other sectors in the wider cultural industries and epitomize the
notion of a so-called winner-take-all market (Frank and Cook 1995). Paid-for
user-acquisition strategies in particular play well into one of the strengths
of well-capitalized companies such as publicly listed enterprises and wellfunded start-ups. While it is hard for a company such as King to raise the
barrier to market entry in terms of game production, the company can
leverage its capital basis and outspend nearly any other game company on
user acquisition.
Important questions pertaining to the institutional configuration of the
mobile segment remain. Significant changes in the structure of, for example
Apple’s App Store, are on the horizon and the iOS platform itself is constantly
changing, as are consumer preferences and privacy and consumer laws. What
will this mean for content diversity and will the position of ‘traditional’ role
of game publishers (re)gain dominance? Considering the networked nature
of mobile platforms and historical precedents in the cultural industries, it is
highly likely that the trend of the concentration of industrial ownership will
speed up, rather than slow down.
Notes
1 The revenue of King grew from US$63 million in 2011 to US$1.8 billion in
2013 (King Digital Entertainment 2014). Flappy Bird is a rapidly developed,
relatively simple mobile game by a young Vietnamese developer that
unexpectedly generated millions of downloads over the summer of 2013 (cf.
Heilmann 2014).
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2 Drawing on the work of Teece (1986; 2006), complementary assets,
Broekhuizen et al. (2013, 954) explain: ‘(. . .) are those assets or capabilities
that go beyond the mere technical knowledge of the innovation itself’.
3 Interviewees indicate that the success of Unity can be ascribed to its
platform agnostic nature and its price tag. Unity has a free version and a full
version priced at US$1500. See: Unity Store. Available: https://store.unity3d.
com/. Last visited: 5 June 2014.
4 See http://148apps.biz/app-store-metrics/. Last visited: 5 June 2014. And
http://techcrunch.com/2014/06/02/itunes-app-store-now-has-1–2-millionapps-has-seen-75-billion-downloads-to-date/. Last visited: 5 June 2014.
5 While there are significant differences among games and players in terms of
demographics and geography, the percentage of ‘payers’ ranges from 1 to 10
per cent.
6 The business practice of user acquisition is a form of game marketing that
involves highly targeted in-app advertisements. Advertisers generally pay
an amount per install (CPI or cost per install), which ranges from US$0.50–7
in peak seasons and popular regions. Advertising consists mostly of
‘interstitials’ (full-screen advertisements) or a short video of game. When a
user touches the ad, the App Store opens so users can download and install
the advertised game.
7 Examples of complementary assets in the mobile domain would be
development software (e.g. Unity) and additional services such Flurry and
App Annie for analytics, or companies such as Chartboost and Facebook for
ingame marketing and user targeting.
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